PGNiG Approved to Join Derogation Proceedings Against Nord Stream 2, Seeks to Push Back Against Pipeline’s Progress to Europe

In mid-March, a German subsidiary of the Polish state-owned Polish Oil and Gas Company (PGNiG), PGNiG Supply & Trading, was granted approval to join ongoing derogation proceedings requested by Gazprom’s project vehicle, Nord Stream 2 AG, to determine the pipeline’s eligibility for exemption from requirements under the European Union’s Third Energy Package.  Unlike Germany, which has been a cautious but consistent proponent of the Nord Stream 2 pipeline (NS2), Poland has been a vocal critic, due to its anticipated adverse implications for European energy (and national) security as well as for price competition in Central and Eastern Europe. 

Gazprom’s $10 billion Nord Stream 2 (NS2) pipeline is intended to funnel an additional 55 bcm of Russian natural gas annually to Europe via the Baltic Sea.  The pipeline would double the capacity of Russian supplies entering Western Europe through this route, helping Moscow to circumvent Ukraine as a necessary energy transit route to its European markets.  Critics are concerned that NS2 will not only make Europe further dependent on Russian gas, but also permit the Kremlin to pursue more politically aggressive policies with regards to Ukraine (and other Central and Eastern European and Baltic states) due to their diminished leverage as transit routes into Europe.  Still, however, there are impediments to NS2’s timely completion that challenge Russia’s ability to make NS2 a reality.

Since January 2020, Nord Stream 2 AG (the Russian corporate vehicle for the project) has been pushing German energy regulator Bundesnetzagentur to exempt the NS2 pipeline from EU standards, which call for transparent market tariffs, third-party access, and the unbundling of gas transmission assets from production and supply assets, all meant to diminish Europe’s strategic dependency on Russian supplies.  As it stands, Russia dominates the supply of gas to the European market.  Critics of NS2 fear that the new pipeline could exacerbate this dependency.

Derogation proceedings are expected to conclude by May 24, 2020.  PGNiG’s participation in these proceedings is a setback for Gazprom’s interests.  Most recently, in December 2019, the U.S. enacted sanctions targeting all firms involved in the construction of NS2, prompting the withdrawal of the Swiss pipelaying subcontractor, Allseas, and interrupting construction work on the final 8% of the project.  Projections for the pipeline’s completion now vary from the end of 2020 to 2024, as Gazprom awaits the arrival of a Russian pipelaying vessel, the Akademik Cherskiy, to finish offshore pipelaying in the Baltic Sea.  The vessel is expected to arrive by the end of May 2020, barring any unforeseen complications.  It is speculated that recent delays could incur significant additional costs for the project.